small business cash flow
small business cash flow

7 tips to manage your small business cash flow

While your product or service may be the heartbeat of the business, cash is the lifeline, and without adequate cash flow, your business health will decline quickly. There are many vital factors to monitor as a business owner, with cash flow topping the list. Unfortunately, lack of cash flow is the number one reason why businesses fail. A recent study by Intuit found that nearly 61% of small businesses around the world struggle with cash flow, and 32% reported being unable to either pay vendors, make loan payments, or pay themselves or their employees due to cash flow issues. Here’s what we recommend to our clients to manage their cash flow:

1. Review finances regularly

Running a business can be a rollercoaster ride at times, with highs and lows, times of optimism, and times of fear. As a business owner, you must have your eyes on your finances regularly. You must know what’s coming in and what’s going out. And if finances aren’t your thing, work with a financial expert to ensure your finances are reviewed on a regular basis and budgets are developed and adjusted as needed. Doing so can help you to evaluate business decisions, plan for the future, and find areas of opportunity. This is especially important for businesses that experience busy seasons. Being proactive can put you in a position to reroute cash when needed.

2. Automate invoicing processes

One of the easiest ways to improve your cash flow is by getting paid faster, and on time. Adopting automated eInvoicing and online payments can improve your invoicing processes and allows you to accept payments faster and conveniently. Stripe offers direct integrations with Xero, to make the process seamless and automated. Regardless of the size of your business, you shouldn’t rely on a paper-based process of mailing invoices and waiting to receive a check. The amount of time lost and risk assumed simply doesn’t make sense when it comes to managing cash flow.

3. Optimize inventory management

If inventory is your main asset, is your stock optimized? Do you have excessive stock of certain items? Are you able to forecast future sales in order to have the right amount of inventory on hand? Can you view your inventory numbers at a glance? If these questions make you sweat, it might be time to optimize your inventory management with a cloud-based app, such as Dear. By knowing exactly what you have on hand at all times, along with the ability to forecast future sales using past sales data, you can free up cash by optimizing stock levels.

4. Reduce expenses

This may be a no-brainer, but we find that many small business owners who rely on outdated bookkeeping processes don’t have a clear picture of their expenses. Without up-to-date books on the cloud, you’ll struggle to identify areas of opportunity. A cloud-based accounting app can give you a breakdown of your recurring expenses. We recommend our clients review these reports on a regular basis to ensure they aren’t incurring unnecessary expenses. If you find your business in a cash flow bind, comb through your expense reports to see where you can cut back—either temporarily or permanently. Do keep in mind that many business expenses are deductible and can reduce your tax burden at year-end.

5. Use a cloud-accounting payroll app

Manual payroll can be a major time-consuming task, and it opens your business up to all sorts of non-compliance risks. Cloud-based payroll apps, such as Gusto, can automate payroll processes and keep you up to date with regulations. Falling behind on payroll tax payments can lead to major cash flow issues, and is one of the most common struggles we see small businesses facing. Automated payroll also means automated payroll taxes—one less thing to worry about. 

6. Increase your revenue (but not necessarily your prices)

In some cases, it may be necessary to increase your prices, especially in times of inflation. Rather than just focusing on increasing prices, consider ways to increase your revenue as a whole. Brainstorm what else you could offer your customers—maybe this is a product line extension or upsell, membership or subscription-based program, or other add-on.  

7. Automate and simplify your processes with cloud-accounting tools

Many of the above recommendations involve adopting cloud-based accounting apps. While this may sound like just another expense that could impact your cash flow, many of our clients report seeing a positive impact once they’re on the cloud. Cloud-accounting apps are typically priced in tiers, which allows you to start small (not paying for more than you need) and grow over time.

Automated accounting processes can save you valuable time, giving you back the hours in your day needed to scale your business and maintain positive cash flow. Above all, cloud-accounting apps, such as Xero, give you valuable real-time insights into your business finances at any given time, allowing you to make well-informed business decisions.
Whether your business is experiencing financial success or struggling to manage from month to month, cash flow should be a top priority. Falling complacent could mean waking up to dwindling cash, without sufficient funds to get through the end of the month. As a business owner, you must evaluate the ins and outs of your business finances, income, expenses, and future projections. If you’re not sure where to start, send us a message. Our team of experienced business accountants, CPAs, and CFOs can work with you to examine your cash flow, identify areas of opportunity, and recommend cloud-accounting apps to incorporate into your business back office.

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